Resources: Organization Closing With A Bang

Q: I remain involved with a nonprofit that I helped organize about 25 years ago. Most of the members and board directors today are in their 70s or 80s. Given the mission – which provides support to individuals directly impacted negatively by World War II – there will be no influx of new members. At the last national conference, the current board announced that it was dissolving the organization because it was unable to find people to join the board and do the work necessary to maintaining the organization. To use up the organization’s substantial treasury – close to $100,000 – there would be a gala gathering. The membership was not polled regarding either decision, and there has been pushback. Several members asked me if there was any way to stop the board from blowing all this money on a party. Any thoughts?

A: I have several! There are two critical issues here. The first is that the members were not consulted. The second is that the decision the board directors made has not only angered the general membership, it could open the directors to personal liability.

Any nonprofit organization belongs to the community, not to its board. Today, more and more community stakeholders realize that, and are standing up for what they feel is best for the community. When the Susan G. Komen Breast Cancer Foundation decided to defund Planned Parenthood, their members revolted. Heads rolled. Even the founder, Nancy Brinker, was forced to step down from her position as CEO. The money previously earmarked for Planned Parenthood was reinstated. When Smile Train and Operation Smile – originally a single organization that split because of a difference of opinion regarding how services should be provided – decided to merge a couple years ago, the membership and donors called a halt. The entities remain separate. When the board of Sweet Briar College decided to suddenly close the institution of higher learning, alumni stepped in and worked with faculty and students to not only save it, but write new governing documents that prohibit something like that from ever happening again.

The common element in the three examples above is that the stakeholders stepped up. You say that members have been pushing back. Are they willing to do more than just grouse? After all, board directors in their 70s and 80s could be legitimately tired, especially if they’ve held their positions for a long time. Perhaps they didn’t ask the right people to step up, but unless there are people to take over, it may truly be time for the organization to shut its doors. As a last-ditch effort, you could try reevaluating what tasks absolutely must be done to maintain the organization long enough to service the relatively small number of remaining members, and then breaking down each of those tasks into small chunks. This might make leadership more attractive.

Assuming, though, an insufficient number of people step up and you do have to close, the board would be hard-pressed to justify spending the treasury on a party. You are required by law to use the organization’s money to further the nonprofit purposes under which the IRS granted exempt status – i.e., charitable, religious, educational or scientific. Further, your Articles of Incorporation should state how you are to distribute any remaining assets at such a time that the organization dissolves. Typically, this is to give those assets to another, similar, organization. In your case, finding another – healthier – organization providing services to WWII-era survivors may be difficult. But, you should be able to find an organization that provides similar services to a different population.

The board may resist this advice. After all, it takes work to have to research other organizations and do the appropriate due diligence to ensure your assets will be used in a way that honors your history. However, board directors should be reminded that if they choose the party route, they are potentially opening themselves to a substantial fine for personally benefiting from organization funds that were diverted from the organization’s mission. This fine could be up to 200% of the portion of the cost of the party considered to be extravagant. (Check out this valuable article on excess benefit: http://www.fortenberrylaw.com/excess-benefit-transactions-nonprofit-organizations/). While the possibility of the IRS coming after your board directors is probably slim in this case, especially since you’d be closing anyway, it could happen given the amount of money you’re talking about.

Note: If your organization is classified as a social organization, it does have an obligation to provide opportunities for its members to gather in social situations, providing your board with some cover. But, in the situation where so much money is involved, I recommend consulting a nonprofit attorney before going the party route.

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